Weekly Technical Analysis

In my last weekend technical update I discussed 3 potential EWP that price
can unfold within the "bearish" Double Zig Zag of the wave (X):

Failure to break above the September 14 high, in which case the current
up leg off the November lows will stall at the September peak or establish
a lower high. If this is the correct EWP then price will most likely revisit
the November lows before the kick off of an impulsive wave (c) within the
wave (A) of the third Zig Zag off the November 2008 low.

Price breaks above the September 14 high unfolding the wave (v) of an
Ending Diagonal, which will establish the top of the wave (A) of the third
Zig Zag off the November 2008 low. The assumed wave (v) of the ED cannot
exceed above 1551.12

Both options will have to unfold a wave (B) large pullback + the last wave
(C) up in order to complete the corrective sequence of the Double Zig Zag
from the November 2008 low (wave (X)).

From the June lows price is unfolding with an Ending Diagonal the wave
(C) of the third Zig Zag. If this is the correct pattern then price now
is involved in the initial stage of the wave (III) which has to top at/below
1551.12 This Ending Diagonal will complete the DZZ of the November 2008
lows and will establish a Major Top.

Therefore the major issue that we have to deal with is that despite price
is not unfolding an impulsive up leg from the November 16 low, being corrective
will not be an impediment to achieve higher prices ahead, hence we have to
give priority to traditional technical analysis instruments such as breadth-momentum
and sentiment indicators in order to detect the most probable outcome. Also
it will be helpful to monitor the pivot resistance/support areas that are
expected to propel price higher or lower if the bulls or the bears reclaim
them.

The major positive for the bulls remain breadth and momentum.

The Summation Index has issued a buy signal during the last week of November.
Its RSI has not entered yet the overbought zone; therefore, if there is
not a sudden worsening, more upside should be expected.

The weekly stochastic of the Summation Index so far strengthens the equity
bullish scenario with a buy signal issued during the second week of November
from an extreme oversold reading. Usually the weekly stochastic follows
a "pendulum pattern" from oversold to overbought, therefore if this sequence
is fulfilled then the equity market should not reverse to the down side
until the weekly stochastic enters the overbought zone and issue a new
sell signal, something that might occur in a multi-week time frame.

Weekly momentum picture: as long as the RSI remains above the 50 line
and the Stochastic does not reverse the buy signal issued in the last week
of November the trend remains up but in order to consider viable a sustained
break out above the September high the MACD has to issue a buy signal:

In the next SPX chart (30 min) we can see that the move from the November
16 low is clearly corrective but unfortunately the immediate direction is
not clear since several different options are possible.

Since the down leg off the December 3 peak is corrective I rule out that the
EWP off the November 16 low is over.

Even if the chart looks messy I highlight 3 potential counts depending upon
if two support areas holds a potential pullback next Monday located at:

The rising trend line that connects the November 28 low with the December
5 low

The December low at 1398.23

The counts are explained in the chart.

Given the clear overlapping internal structure of the move off last Wednesday
low I lean towards a pullback starting next Monday, but it is unpredictable
how the market will behave in front of next Wednesday FOMC day.

Finally in the daily chart I highlight the key support #, while above Friday's
eod print (which is above the 50 dma) we can see that if bulls are able to
achieve a break out above the next resistance located in the area of 1423.73 – 1424.34,
then they will not have any obstacles to reach the next resistance located
in the area of 1433.

The cluster of resistance located at the November 6 peak (Bollinger Band +
Trend line resistance) can be a reversal point provided we have negative divergences
and an overbought Summation index otherwise this corrective pattern could
morph into a larger Zig Zag or Double Zig Zag aiming at the September 14 high
during the month of January.

Regarding the daily momentum, the RSI so far has no negative divergence while
the Stochastic is overbought and giving whipsaws signals while the MACD is
crossing the zero line (Another positive for the bulls).

For the short term as long as the Stochastic does not cross the 80 line I
rule out a meaningful pullback while the RSI 50 line remains the "line in
the sand" between bulls and bears.

Lastly to make things a bit more complex, last week the EUR had an abrupt
reversal with a 5-wave decline that can be a trend changer.

With an impulsive sequence completed, a multi day bounce will most likely
be followed by at least one more large down leg. If the "countertrend" bounce
is strong enough to reach the 1.3000 area then price could be forming the
right shoulder of a H&S pattern that could carry price back towards the
November lows.

Next week the main risk event is on Wednesday with the FOMC monetary policy
announcement, in addition the market remains "hostage" of the US "Fiscal Cliff" political
battle between Democrats and Republicans. The dead line is on Monday January
31, but if Mr Obama wants to leave for the Christmas holidays an agreement
must be reached by Friday December 21, which also coincides with Quarterly
OPEX.

Conclusion:

Regardless of a potential "shallow" pullback next week I maintain a bullish
bias (until technical evidence shifts to the bears camp) since the pattern
off the November lows is not complete yet.

My goal is to establish the most likely path that the price of a particular
asset will undertake and profit through ETF instruments both on the long and
short side and mainly with leveraged ones (2 x & 3 x).

Therefore the main purpose of TWT will be to establish investment strategies
regardless if the market is in an up trend or in a down trend, leveraging
the chosen scenario while managing the risk by establishing protective stop
losses.

Hence I will always define the risk, I will try to let winners run the wave
and I will cut the losses if my strategy is wrong.

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